Refer to the accompanying figure. Suppose this demand curve shows the demand for lattes at a single coffee shop that charges $2.00 for a latte. If the manager wants to increase total revenue, what should the manager do?
A)Increase the price from $2.00 to $3.00.
B)Increase the price from $2.00 to $2.50.
C)Reduce the price from $2.00 to $1.00.
D)Reduce the price from $2.00 to $1.75.

Question

Refer to the accompanying figure. Suppose this demand curve shows the demand for lattes at a single coffee shop that charges $2.00 for a latte. If the manager wants to increase total revenue, what should the manager do? 
A)Increase the price from $2.00 to $3.00. 
B)Increase the price from $2.00 to $2.50. 
C)Reduce the price from $2.00 to $1.00. 
D)Reduce the price from $2.00 to $1.75.

Quizplus · Accepted Answer

Along a straight-line demand curve, revenue is the highest at the price that lies on the midpoint of the demand curve, where demand is unit elastic. In this case, this occurs when the price is $1.75. Thus, the manager should reduce the price from $2.00 to $1.75.

Refer to the Accompanying Figure